'Low-Cost' Renewable Energy Is Breathtakingly Expensive

How often do we hear proponents of renewable energy claiming that wind and solar power are the lowest-cost power sources on offer?  Hardly a day goes by without these ideological zealots offering one or another discredited argument that their favored sources are not only necessary to save the planet from some existential climate catastrophe, but also lower-cost than conventional power sources.  These outlandish claims got a major boost when a freshman House of Representatives member unveiled her "Green New Deal," which absurdly claimed that the world would end in 12 years unless the U.S. made a crash effort to radically transform its economy in the next ten years.  That transformation would entail, in addition to a lengthy list of inane ideas, complete elimination of beef and dairy cattle, elimination of air travel in favor of high-speed ground transport options, and complete conversion of all power generation to renewable sources like wind and solar power.  The contention, born out of economic illiteracy, is that this transformation was not only necessary for planetary survival, but would be so affordable that we would struggle to know what to do with all the newfound prosperity.

We don't need to wait around for decades to learn how this program would work in practice.  At least some of these wild claims are testable today by examining energy prices in places that have already deployed large measures of renewable energy.  Currently, 29 states have enacted laws called Renewable Portfolio Standards (RPS) requiring certain threshold levels of renewable energy to be used in the generation of electricity.  Thus, it's a simple matter to compare the effect of high renewable energy penetration on system prices in those states that have integrated large amounts of renewable energy into their generation portfolios with those of adjacent places that have forgone this option.

Let's examine in detail all-sector electricity rate activity in five states with high degrees of renewable penetration (i.e., states that have deployed renewable capacity to such a degree that their 2018 renewable generation output represents the highest percentages of total in-state generation output from all sources).  Kansas is the U.S. state with the highest degree of renewable energy penetration in 2018.  As the chart below shows, the state began deploying wind power at a furious pace beginning in 2008.  (Note: Kansas first deployed wind power in 2001, but the state saw only token deployments until 2008.)  At the beginning of 2008, year-to-date all-sector rates were below 73% of the U.S. average.  But by the end of 2018, Kansas rates were essentially equivalent to the national average.  As the state increased wind capacity by nearly a factor of six, its rates climbed more than 7.8 times faster than the average of the 45 states with the lowest degree of renewable energy penetration.

It wasn't an accident.  A recent Kansas rate study of several utilities in the state makes clear that a large measure of blame for skyrocketing rates resides with inordinate amounts of fixed investment in power generation (i.e., wind farms) and transmission lines (i.e., the costly integration infrastructure required to connect far-flung wind power turbines to distant consuming regions).

The state with the second highest degree of renewable energy penetration in 2018 was Iowa.  A careful examination of all-sector rate activity in that state in the chart below provides a nearly identical picture as seen in Kansas over the same time frame.  Like Kansas, Iowa saw its first wind power deployments many years earlier than 2008.  But between 2007 and 2008, the state more than doubled its deployed capacity, and in the years up to 2018, Kansas tripled deployed capacity from the 2008 level.  On cue, between 2008 and 2018, all-sector rates climbed more than six times faster than the other 45 low-penetration states.

Another state figuring on the list of the top five renewable energy penetration percentages is North Dakota.  Now the country's second largest oil producer, North Dakota has nevertheless been deploying wind energy in almost identical fashion as Kansas and Iowa.  Like with Iowa, North Dakota began deploying token amounts of wind power in the early years of the century.  And exactly like Iowa, the state doubled in-state wind power capacity during 2008.  Since then, wind capacity more than quadrupled.  Since 2008, all-sector electricity rates soared 6.9 times faster than the composite of the 45 low-penetration states.

Another top-ten renewable energy high-penetration state is Minnesota.  Like most U.S. states, Minnesota enacted a Renewable Portfolio Standard in 2007 that was initially set at 25% by 2025 (i.e., one fourth of power output must be derived from renewable sources).  Even before the signing of the RPS measure, the state had deployed more than one thousand megawatts of wind power capacity.  Over the next eleven years, wind capacity deployments would more than triple.  As with other high-penetration states, Minnesota saw its all-sector rates, which in early 2008 were 17% below the national average, surpass that national rate benchmark by the end of 2018.  During those years, Minnesota's all-sector rates would climb 6.7 times faster than the 45 low-penetration states.  Interestingly, despite imposing billions in costs on the state's ratepayers and taxpayers, these deployments have had only token impact in reducing greenhouse gas emissions. And now some utilities in the state are pledging to achieve the 100% renewable output threshold.

Perhaps our valued readership wonders why the above data include only wind power output and not solar, thermal, or photovoltaic energy also.  The answer is that with the exception of California, solar energy in the top ten penetration states is inconsequential.  Solar energy accounted for only 2.7% of combined wind and solar among nine of the top ten penetration states in 2018 and only 0.06% collectively in Iowa, North Dakota, and Kansas.

California is the state that has taken a leadership position in deploying zero-emission energy generation capacity.  Wind turbines made their first appearance in large numbers in the early 1980s.  Wind energy capacity grew to over 5,000 megawatts of nameplate capacity by 2012 but leveled off without major capacity additions after that year.  Nevertheless, beginning in 2013, the state began deploying both utility-scale and residential solar power at a furious pace.  Over a four-year period, the state added an average of nearly five terawatt-hours of solar generation output each year.  By 2018, solar output had become twice as large as wind power output.

In 2006, Governor Arnold Schwarzenegger signed the state's A.B. 32 law, the most aggressive RPS program enacted anywhere in the U.S.  In addition to a host of costly emission reduction measures, the law required the state to derive one third of its electric power from renewable energy sources by 2020.  Despite crash efforts to achieve its goals, California had derived just a 29.5% non-hydro renewable penetration level by the end of 2018 according to DoE data, of which wind and solar combined accounted for 20.6% of in-state generation.  Given that California rarely generates as much as 80% of its consumption needs, these proportions are much lower on a percentage of consumption basis.

Exactly in line with the other renewable energy high-penetration states discussed above, all-sector rates in California rose dramatically once high levels of renewable output began being layered onto the state's generation portfolio.  Between 2013 and 2018, all-sector rates in California rose 7 times faster than comparable rates in the 45 low-penetration states.  During 2018, residential rates pierced the 20.5-cent level in the state, the first time on record that statewide 20-cent residential power prices had ever been seen.

Looking at the top ten states based on wind and solar energy penetration, an identical pattern emerges.  Between 2008 and 2018, all-sector electricity rates in high-penetration states collectively rose 4.5 times faster than for the 40 low-penetration states as a group.

As states boost their RPS thresholds, more renewable energy sourcing will be required, and electricity rates will be driven even higher.  No matter what renewable energy boosters contend, the evidence is incontestable.  High levels of renewable energy integration are boosting electricity rates quickly, and the higher the degree of penetration within a state, the higher the multiple by which rates increase over those states that have forgone renewable energy integration.  Despite lurid claims that these deployments are necessary to "tackle global climate change," the reality is that there won't be any measurable beneficial impact on the global climate no matter how much renewable energy U.S. state produce.  But there will be a huge negative impact on the economic climate.

Joseph Toomey is a career management consultant with undergraduate and MBA degrees in finance.  He is the author of An Unworthy Future, an economic appraisal of Obama's "green energy" economy.

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